There’s no getting around it: buying a home is expensive. Due to high mortgage interest rates and rising real estate prices, purchasing a home in today’s market is a burden for new buyers. What many buyers don’t know, however, is how much their own agent will be paid as part of the transaction – a number that is used at The home buying process is often lost or overlooked.
In fact, 28% of recent home buyers have no idea how much their agent made and 17% don’t know how the amount was determined, a study finds Redfin report published on Thursday. Results from a separate survey found that nearly 20% have no idea who actually paid their agent. The survey conducted by Qualtrics surveyed nearly 3,000 homeowners and renters in February.
The results follow a landmark $418 million settlement with the National Association of Realtors about a alleged conspiracy to increase brokerage commissions. NAR, the country’s largest trade association representing 1.5 million members, agreed to pay damages in several lawsuits, including one that ended in one $1.8 billion verdict, noting that NAR (among other brokers) has helped increase commissions. NAR also said it will ban broker compensation listings on the Multiple Listing Service (MLS) and require MLS users to sign written contracts with buyers. According to Redfin, these agreements must specify what compensation the agents receive.
Following the ruling, experts expressed mixed opinions about how much the ruling will impact real estate agents’ bottom lines. Some say so will not have a major impact on broker commissionswhile others say so Judgment means doom for the profession as we know it. Whatever the case, it’s clear that homebuyers don’t really need to worry about their agent’s judgment or pay, whereas sellers need to be involved in these negotiations from the start.
But that’s something everyone involved in the homebuying process should be aware of, says Redfin chief economist Daryl Fairweather said in a statement.
“Many Americans are making the largest purchase of their lives without knowing exactly how the professional they hired to guide them through the transaction will be paid,” Fairweather said. “Home sellers often have a frank discussion about fees with their agent before signing a collaboration agreement. Buyers would benefit if they did the same.”
How are brokers paid?
Just like other sales professionals, real estate agents get paid through commissions on the homes they help a buyer buy or a seller sell. However, this is the only money they make from working with their customers. Normally they do not receive a salary or an hourly wage. Additionally, they only enjoy an actual payday once the transaction is completed. Although the tight housing market has resulted in shorter closing times, it can still take weeks or even months for housing transactions to fully close.
The broker’s commission depends on the price of the house, with the buyer’s and seller’s broker’s commission usually being split. Assuming that the average home price (according to the Case-Shiller Index) is about $310,000 with a 6% commission, which is fairly common, the seller’s agent and the buyer’s agent split that $18,600 -dollars and everyone takes home more than $9,000.
However, it’s not always that simple. Sometimes newer agents earn a lower percentage of commission than experienced agents because of split team commissions and bro contracts. And for brokers who work for a company, the broker usually also takes on part of the commission.
That sounds like a lot of money for one transaction…
Redfin’s survey also found that nearly 40% of homeowners who plan to sell their home in the next year think a 3% commission for a buyer’s agent is too high. But a similar proportion of sellers think the amount is “just right” or too low – which just goes to show how little the average homeowner knows about the home buying process and that they are completely divided about what the right amount for the home is When it comes to paying a broker.
However, it is important to know that commission rates can be discussed and negotiated in advance. In fact, NAR now requires that these numbers be determined in advance.
“People get uncomfortable talking about money, but it’s important to understand what your agent is charging and discuss whether you need to ask the seller to cover your agent’s fee or take it out as part of your offer negotiation “Have to pay out of pocket,” said Fairweather.